See you in December….

As you gathered from the last post, I’m off to Ecuador until December. When I get back you can look for posts on Deflation, Target Date Funds, Withdrawal Rates, running the rent v own numbers on some of the property I will have checked out in Ecuador and more on the possible Retreat/Gathering where, if you show up, we’ll get a chance to spend some time together.

Meanwhile if you just can’t wait, and you haven’t already, you can tune into my recent Interview and hear me now.

Should that not be enough, here’s some seriously cool stuff to help keep you amused until December:

One of the best things about our summer in South America was all the, mostly young, people we met on their own extended world journeys. Wonderful adventures spanning months and sometimes years. But not one single traveler had the United States on their itinerary. Some, I think, are intimidated. That’s too bad. I’ve traveled across damn near every state and these Americans are for the most part a friendly, open and welcoming bunch. But what really set me back were the people who said, “Well, there’s just not much to see in the USA.” Now that left me stunned. Not much to see??? Come along. Let’s Fly over America together for a look. It’s a little plane, so hang on!!

Pretty dramatic, eh? And just between us, they left out some of the best parts!!

About 5 or 6 years ago, I was in Pie Town, New Mexico. I had driven over from Phoenix, Arizona where I’d been attending a conference to visit my pal Wolfgang who had a ranch six miles out-of-town. He flew in from Albuquerque putting his small plane down on the dirt strip he’d laid out on his land. Since I had a couple of days alone at the place before he arrived, I drove over for lunch in the Pie Town Cafe one afternoon. Pie Town is not much bigger today than in the photo above and a stranger in the local cafe still prompts curious stares. Eventually the cheerful, inquisitive waitress pried out what brought me to town and who I was there to see. Smiles all around and agreement my friend was their friend and a heck of a fellow to boot. Click on the caption under the photo for more shots circa 1940. Beginning about six down the shots are all Pie Town.

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I will vouch for the fact that Jim is not afraid of snakes.
We were out camping – was it near Pie Town? New Mexico, somewhere. We were all looking for fine places to set up our sleeping bags and bed down for the night. Each of us looking for someplace that – well, spoke to us.
Jim found a spot, and started to unroll his sleeping bag. Next thing I knew, he was standing back where he started, looking a bit uncertain.
“I thought you’d found the perfect spot-?” I asked.
“I did,” Jim replied. “It was excellent. Right near a bush, good rock energy around…”
“So?”
“Well, my opinion was apparently shared with a large cobra that was asleep under the very same bush. And, since he had procured the spot before me, I felt it only fair to relinquish my claim on the perfect sleeping spot – and – find another.”
And so Jim had to do with – second best. Only fair, I guess.

What? Someone said that there is not much to see in the USA? As a Canadian who made two month-long drives across the USA, I can vouch that whomever said that is full of crap. My most favourite word in (recently acquired) English language is “Majestic”. Well, I do not use my favourite word lightly – and so far, I have only found two places that are worthy of this word – Croatian Adriatic coast and Yellowstone/Teton national parks.

And yes – vast majority of Americans are awesome, warm and hospitable people. Problem is that people travel to popular attractions and then think that they have seen the real America (hint: Disney World and MacDonald’s are not it). Best way of travelling is by car – visiting tiny towns, quirky attractions, roadside family restaurants…

Lifetime of travel could be filled by visiting nothing but the USA. It could take a year worth of travel just to visit 4-5 main areas I always wanted to explore in more detail. Places like Washington, DC where I could spend 6 months and still not be able to visit everything I may want to see…

Driving along the coast in Ecuador one night this trip, we came across a 5 or 6 foot Boa Constrictor in the road. These are wonderful, non-poisonous snakes that keep the rodent populations in check.

Since ill-informed people tend to intentionally run over these snakes, we stopped to get it off the road. When I went to pick her up, she opened her mouth and hissed at me clearly saying what she thought of that idea. So to give us both a more comfortable difference, I found a stick and carried her to the brush. Worked for us both.

I’ve read a couple blogs of people from North America that have become expats in Ecuador, specifically Cuenca, and really seem to love it. Cuenca is very affordable, on the dollar and not difficult to get to. The main drawback, in my opinion, is the weather. This, of course, is coming from someone who is used to Florida heat and sunshine. I am definitely interested in living outside the U.S. one day if possible. Ecuador is pretty high on the list.

It occures to me it would be fun to have a coffee with a couple of those expat bloggers in Cuenca while I’m there.

My filight to Cuenca is tommorrow, Oct 30 and I’ll be there until Nov 13th. I’m staying at the Hotel Otorongo on Av. 12 de Abril. I don’t travel with a phone or computor but I check my emails in internet cafes. They could just leave a message at the hotel.

Maybe you could link to my last two posts to give them a sense about me.

First of all, you are right – most folks from out of the US think that the country is comprised of New York (Statue of Liberty), Los Angeles (Universal Studios tour), and Florida (sunshine, beach, Disney). When I show them photos of Wyoming or Utah or New Mexico they are blown away…..

And….Pie Town! What an amazing little nook. I was there in May. There are one or two stores in town (not really a town, but a pullover on the road) and when I entered one it was like the Space Bar at the Far End of the Universe in Star Wars. One woman began talking to me about how she was going to India to participate in some psychic awareness workshop. Another, when I mentioned visiting Bordeaux next, informed me that Malbec wine was served at the 1152 wedding of Eleanor or Aquitaine to the Duke of Normandy and future King of England – Henry the 2nd. It was like visiting the Oracle in the movie the Matrix – a woman baking cookies who also had magnificent insights into the workings of the universe.

Which, like it or not, you will have injected in your life when you take your next trip South. Less expensive living and clean air and less stress is wonderful….but the real joy will be the neighbors and their hospitality and their colorful patterns of life. Ah! The Riches that Await! Would love to visit!!

Edited and changed from an email I sent, with a lot changed and a lot added at the end:

First, THANK YOU for the blog. I’ve learned so much so fast.

Alright, so, two weeks ago I typed in “how early can I retire” and out popped Early Retirement Extreme. I read pretty much everything in 3 days at work (it was a slow week). From there, I read the suggestion to migrate to MMM. From there, I found your site.

Suffice it to say, my mind is blown. I am a typical consumerist, but I have avoided many traps. No debt, I buy my cars, even my newer cars, in cash, and all that. That being said, I was in the army until February, and saved nothing. When I started my post army job at 25 in April, I started contributing the suggested 10% in salary, and figured, only 40 more years until retirement! I literally randomly said to myself “2000 a paycheck after tax is what I want” and used a calculator that said 10% can get me that. Then I went out every weekend, spent money on way too expensive clothes, and did all the other things I made fun of people in the army doing. I was frugal in that I had no credit card debt, no car payments, and I was afraid of loans because my parents were in debt their whole life, but I didn’t take it the step past no debt – I maxed out my spending to meet my income like an idiot.

Then I became disenchanted with life in general as it is in the rat race, and thought that 40 years was basically a death sentence. So, questions.

I’ll start with one that has been bugging me… You said “If it sounds too good to be true, it is.” Early retirement(less espoused by you, more by MMM and ERE), Vanguard, VTSAX(and other recommended funds), etc… all this WAY too good to be true. Like, ridiculously good. So, despite the fact that it makes sense… how do I avoid being conned here? Everyone can be conned, and a lot is at stake here. So this worries me a lot.

Second, I have a Fidelity 401k. I contribute 10% of my shitty (for DC) 78,000 salary, and my company matches 50% of each percent I contribute up to 8%.. so 4%. Totaling 14% of 78,000, or around 10000/year – a number I was shooting for, randomly, with no wisdom or real thought. Then I split 25% between FID LOW PRICED STK K, GS SM CAP VALUE INST, TRP BLUE CHIP GRTH, VANG MIDCAP GRTH INV. I almost completely randomly picked these after fifteen minutes of research. Yes, I’m dumb. I’m happy that I picked a vanguard fund, but I want to switch it all over to VTSAX. The problem is that every time I see (in comments) what you suggest to people with 401ks, you don’t suggest Vanguard at all and definitely don’t suggest VTSAX. I have fidelity, but my plan has lots of Vanguard access in it. What should I do with it all? Throw it in any true index fund, or should that be only for my taxable account? Additionally, and this is very important for my strategy starting now, should I start to max out at 17,000 for the 401k, or is that money better in a normal taxable account?

Some other questions: How do capital gains and other taxes affect the “4%” a year retirement plan? If they go up, do we need more… are they already accounted for… etc? You also mentioned, at least once, that VTSAX is for lazy people and that people who pay more attention can do other things, still using indices and the like, that perform better. But other places you mention that this is NOT true, and that VTSAX will almost always win. Now, granted, I don’t think I’ll be a new Buffet, but I do find this stuff to be fascinating, and so I’d love to become more immersed in it. Will I spend 5 years on research and end up back at VTSAX, and thus with nothing gained? This is more just curiosity.

Alright, so those are the questions that have been burning since a few weeks ago, now I’ll get down to more specifics about me. You don’t have to answer these questions, really, as I think I can extrapolate most of it.

So, me. 25 (and a half). I have a full time job in the DC Metro area making 78,000. Things are expensive here. I have a part time job in the military as a reservist making around 500/month, taxed down to less than 300, which I am considering putting completely into the TSP. Bogleheads.org says TSP is one of the best places to keep money – even better than Vanguard – so I’m really tempted. But I also REALLY want out of the military in general, so staying in might not be the best way to go, even for the TSP benefits. The other issue is that with another 11 years of service, I get access to a pension that starts around age 56 and, if I add very little additional active time from now until then and don’t get promoted, will provide around 1400/month from 56 until death(which increases for inflation). It is very enticing, but this is a personal decision, not one I expect help on the internet to make for me. The TSP and the pension together make it an incredibly enticing option, but I truly am tired of the bs.

Anyway, back to the story, which is already way too long.

Income: $4000 a month after 10% 401k, HDHP, and dental plan (which I might get rid of after reading ERE and MMM) from main work, $280/month from reserves (which could end in June if I truly am fed up with the military)

Here are my current expenditures:
Rent: 900 (730 rent, 170 utilities, cable/internet, etc split between the three of us.. I’m averaging, but estimating high)
Food: $500 (includes a lunch and dinner out every week)
Car Insurance: $60 (360/6 mo)
Gas: $100 (traffic sucks and I live 15 minutes from work… yes, MMM readers, I know)
Gym: $20
Cell Phone: $90 (as soon as contract is up, I’m going to the MMM $10 plan)
Hulu: $10
Misc: (Car bills, oil change, haircut, etc) $100
Clothing replacement: $50 (I have to dress rather nice at work, so this can be a lot more if I need a suit randomly or like the other day when I got a tear in my favorite shirt.. average $50, as some months its 0)
Total: $1730
Earned: $4000 (Not including the military until I make a long term decision)
Remainder: 2270

Currently I have 3500 emergency fund and around 6k in my 401k, which as I said earlier, I am wondering how to distribute.

In the past, I’ve been spending the extra on… lots of clothes, for work and fun, and for going out. A lot. And travel. I also had a 1000 dollar car problem, a broken laptop, and little electronics crap that I spent a lot on this summer.

So, here is my plan. Please, give advice.

Max 401k. This will drive down my paycheck about another 700/month. That leaves me with 1500/month left over. 18000/year.

I figure I will get a Vanguard Roth IRA (the tax advantage here is HUGE), 5k a year. That leaves me with 13k a year into a taxable vanguard account, likely 100% VTSAX.

Totals:

17k/year into 401k
~3k from company 4% match (50% for first 8% I give, they do top up but I won’t hit 17k early so won’t need it)
5k/year Roth IRA (I assume VTSAX once I hit 10k, but suggestions are warranted. I currently have no Roth IRA)
13k/year Vanguard account (VTSAX, maybe some bonds/REIT as hedges if I’m truly worried)

Total savings is 38k/year, which is actually LESS than half my salary.

I feel pretty shitty about this. It is more than half of my take home, but I feel as if, even in my high expense area, I DON’T finance anything and my rent is WAY lower than anyone I know. Literally everyone I work with pays more than double what I pay. One girl, making 16000 less than me a year, pays 2000 a month in rent alone on a 1 bedroom. She is a total consumerist. But I still feel as if I’m not doing well enough by only saving 38k, well less than half my salary. Even in DC, I should do better, but I don’t see a lot of room for improvement. Gym, cell, maybe gas, but if I move closer to work my rent goes up. Internet is part of the package in rent, as the roommates split it and its in the lease. Where do I cut spending?

Alright, so I gave you an incredibly long post with more details than I’d typically like to divulge on the internet, and hopefully my company doesn’t find this and find out that I’m not particularly fond of working (my company is amazing. my job is complete shit).

I apologize for the length, and once again… This site is awesome. It has changed my life, honestly. This, MMM, and ERE have given me a crash course in why I am a piece of shit human being. I am so grateful for finding these sites and hopeful I can institute the changes needed to radically change my retirement outlook. Again, sorry for the length and the rather winding path I took with my questions.

Grammar and spelling errors.. well, meh.

Note to James… I have two questions, one about personal goals and one about a life event that could happen, that I would prefer answered privately. If you made it this far and are still interested in answering my other questions, please let me know and I will shoot you another email. You could then sanitize them and comment about them, but I’d prefer to keep them separate from this other information, to avoid any possible work issues.

First, doesn’t sound to me like you’re “a piece of shit human being.” Sounds like you’re a young guy trying to sort thru career and money choices in the face of lots of confusing info. And it sounds like you’re thinking about the right questions, a great start.

1. As for VTSAX and the wealth building power of stocks being ‘too good to be true’ I guess I’ve never thought of it that way. As I tried to point out in the stock series, while the results of time are powerful, it is an often violent and gut wrenching ride. Not for the faint of heart or those prone to panic.

3. As for saving the 17k in tax-defered or taxable accounts, you want to consider two things: Your tax bracket and at 78k per year as a single guy you’re in the 25% bracket and when you plan to pull the money. That is, are you planning early retirement like MMM and ERE.

4. The 4% withdrawal rate. I’m planning a post on this coming soon.

5. VTSAX is not just for the lazy but also because it will beat the vast majority of active funds. Investing is the rare situation where less effort and greater simplicity yield better results. Complicated investments serve to enrich only those who sell them.

6. As you observe, only you can answer the quetion as to whether to stay in the milarty. But doing something you dislike just for the benefits doesn’t sound appealing to me. Life’s too short.

7. Don’t beat yourself up about saving ‘only’ 38k per year out of 78k total. You’re doing just fine. Settle in at that spending/savings level and revisit other steps you might take in a year or so.

Generally speaking, I prefer to get and answer questions on the blog rather than in personal emails. Many people might have similar concerns and find value in reading this.

That said, if you have very private questions, sure, shoot me an email and I’ll try to help.

As far as the con goes, I was mostly saying that from your con post, where you say “If it sounds too good to be true, it probably is,” I am a little nervous about Vanguard. It sounds too good to be true.

I would love to be able to retire early, but I’m still not sure I have the math right and the ability. For me, early retirement wouldn’t be what I would do. I would rather have F-You money, and continue working normally, but in a job I enjoy more. Likely teaching at a community college or living in Europe. Ideally I would buy a house in Italy/France/Argentina/wherever and not work, but I have no idea what kind of money would be required for that – still too early in my research. I will definitely create an investment plan and then base my future plans off of that (as suggested at bogleheads.org).. So we will see. Any suggestions or advice in this department will be helpful, and I think the 4% post will help, so I am looking forward to that one.

When you say consider taxes and the 17k in 401k… are you saying it is a good idea to max it to avoid high taxes, or that my taxes are lower now than they could be in retirement? I am thinking I should max the 401k for the tax benefit, and then have a Roth IRA to get the future lack of taxes benefit after that. But if you have other thoughts, please share them. What about the funds? I have some vanguard funds, and in a month or so can put it all in VTSAX, but I’m not sure this is a great idea, considering advice you’ve given others. Also, on bogleheads.org they say that sometimes in a non-Vanguard 401k company, its better to buy an ETF because of the fees on buying a mutual fund. I can do this comparison on funds myself, but if you have any thoughts, let me know.

I’ve settled in to this savings rate about a month ago when I realized I was blowing too much, and then definitely locked myself in when I started reading blogs like this. I’m hoping I can maintain it. I think when I need a suit or another new set of tires/transmission/whole car, I’ll have to break it a little bit, but I think I’ll be okay even then. We’ll see, though; women are the root of all money problems.. or evil, or something. (I’m kidding, just referring to the fact that I will probably spend more during a dating process, though I can hopefully avoid getting married)

My questions are basically this: I have the capability to increase my salary, short term, by about 70%. It requires a crappy living situation for anywhere from 6 months to 2 years, as I would be living abroad (not a fun place). But I would have no rent, no food bills, and my 401k match would increase, as would my overall salary. But even with this, my calculations say that over a ten year period, this increase in salary would only increase my portfolio by about 70k if I did this for a year. Am I doing the calculations wrong? I want to know the future ramifications of this before I make a decision. The money and career advancement are amazing, but if a 70% increase in salary (and even higher increase in savings, with no rent, no food bill, no debt, etc) only results in 70k more in my portfolio after 10 years, it isn’t worth living in a war zone for a year. I forgot to mention – by doing this, the first 95k I earn is tax free. So basically, I’m earning 78k… with the 70% increase, that is 132,600… -17.5k for 401k.. 115,000 gross… but the first 95,000ish is tax free, so I only get taxed on 20,000. But even putting 90,000 into stocks (spending the rest on amazon and a vacation) at conservative projections, it only increases my portfolio over 10 years by 70k compared to my current savings rate. Am I doing a calculation wrong? If I stay 2 years it is a bit more, but still not THAT much more – not enough that by losing a year of my life living abroad, I gain more than a year at the end of my working career off completely. Can you provide some math/clarity on why this might be?

The other questions had to do with living abroad, tax questions, and things like that, some of which I’ve found out on my own and some of which will have to wait until I have a real future plan other than “f-you money.”

Again, sorry for the length and the slight rambling I took in my question about going abroad.